Ricky Sandler's Eminence Capital Likes Tech & Science Plays: 13F Filing Q1 2009 ~ market folly

Thursday, June 25, 2009

Ricky Sandler's Eminence Capital Likes Tech & Science Plays: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

(image courtesy of Value Investor Insight)

Next up, we have Eminence Capital. Eminence is a New York hedge fund ran by Ricky Sandler. As of this last quarter's filing, they held $4 billion in long US equity exposure. Sandler attended the University of Wisconsin and holds a CFA designation. Prior to Eminence, Sandler started his career as a research analyst for Mark Asset Management and then went on to start Fusion Partners at the age of 25 with Wayne Cooperman. As their investment styles started to differ, Sandler went on to start Eminence. Sandler employs a 'quality value' approach to running his portfolio, spending equal time on both the long and short sides of his portfolio. In the past, he has said they employ gross leverage and are typically around 120% long and 70% short. The last major performance update we gave on them was in March of this year where they were -0.4% for the month and up 5.23% for the year as of that time. At the end of this article we've attached a Value Investor Insight feature on Ricky Sandler from the past.

The following were Eminence's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Thermo Fisher Scientific (TMO)
Visa (V)
SPDR S&P 500 (SPY)

Some Increased Positions (A few positions they already owned but added shares to)
Apple (AAPL): Increased by 71%
Walmart (WMT): Increased by 71%
Lowes (LOW): Increased by 38%
Nike (NKE): Increased by 27%
Lockheed Martin (LMT): Increased by 25%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Oracle (ORCL): Reduced by 59%
International Game Technology (IGT): Reduced by 55%
Bed Bath & Beyond (BBBY): Reduced by 49%
Qualcomm (QCOM): Reduced by 26%
SAIC (SAI): Reduced by 24%
Quest Diagnostics (DGX): Reduced by 23%

Removed Positions (Positions they sold out of completely)
Microsoft (MSFT)
Applied Materials (AMAT)
Genentech (DNA)
Grupo Televisa (TV)
Agilent Technologies (A)
Gaylord Entertainment (GET)

Top 15 Holdings (by % of portfolio)
  1. Oracle (ORCL): 8.23% of portfolio
  2. Abbott Labs (ABT): 6.63% of portfolio
  3. Cognizant Tech (CTSH): 6.2% of portfolio
  4. Lockheed Martin (LMT): 5.95% of portfolio
  5. Fiserv (FISV): 5.9% of portfolio
  6. SPDR S&P500 (SPY): 5.25% of portfolio
  7. Qualcomm (QCOM): 5% of portfolio
  8. Google (GOOG): 4.6% of portfolio
  9. Zebra Technologies (ZBRA): 4.5% of portfolio
  10. Cisco Systems (CSCO): 4.45% of portfolio
  11. Quest Diagnostics (DGX): 4.3% of portfolio
  12. Ross Stores (ROST): 4.28% of portfolio
  13. Laboratory Corp (LH): 4% of portfolio
  14. Apple (AAPL): 3.9% of portfolio
  15. Thermo Fisher Scientific (TMO): 3.7% of portfolio

A few observations about their portfolio: Their largest position (Oracle) is still their #1 holding, even after they sold 58% of the position on a quarter to quarter basis. That just gives you an idea of exactly how big of a position this was for them. We'll have to wait until next quarter to see if they were merely trimming their position size or making a greater move in the context of things. They also hold Abbott Labs as their 2nd largest position which is interesting seeing how shares of the company declined steadily from February until April (new 52 week lows). It appears to be showing some signs of stabilization now and maybe they see value in this name.

In terms of 'typical' holdings that we usually see in hedge fund portfolios, Eminence fits the bill. They hold Qualcomm (QCOM), Apple (AAPL - a position they noticeably added to), Thermo Fisher (TMO), and Visa (V). Those names are some of the most widely held amongst numerous hedge funds we track here in our portfolio tracking series.

What also struck us as interesting is Eminence's propensity to own laboratory testing companies, as they own the two main players in the space: Quest and Laboratory Corp. Combine this with their aforementioned pharma play Abbott Labs and lab supplier Thermo Fisher and we could possibly see a sector bet here.

And, as mentioned in the beginning of the piece, here is a Value Investor Insight feature on Ricky Sandler from an issue in the 2006 that gives nice background and is an interesting read:

Assets from the collective holdings reported to the SEC via 13F filing were $1.5 billion this quarter compared to $1.85 billion last quarter, so there was a slight decrease. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros), and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners, Philip Falcone's Harbinger Capital Partners,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.

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